January 2021 Market
We are starting the year in the hottest seller’s market in recent memory…
As I predicted in the December market update, we have started off the year with the lowest inventory of homes in OC since tracking begin in 2004, and because of this, the housing market is coming out of the gate on fire in 2021. Compared to last year there are 48% less homes on the market at the start of this year while on the other side demand is up by 32%. This has helped us continue where we left off last year, which keeps us in an extremely hot seller’s market.
As we started off the year, interest rates fell from the all-time lows of last year to hit new all times lows last week when they dropped to an average of 2.65% for a 30-year fixed mortgage. Besides the low inventory, this is the main driver of this hot market. Money has never been cheaper to borrow putting homes previously out of reach for some buyers back into the realm of possibilities.
However, last week there was a spike in the 10 year treasury bonds, which is important to watch because although there is not a direct correlation, mortgage interest rates generally follow the 10 year treasury. This week interest rates started to climb and went from last weeks all time lows of 2.65% to 2.79%. It doesn’t seem like a giant jump, but even small changes in rates can impact the price of home you can afford as well as increase your monthly mortgage payments for the same priced home. For example, last year at this time if you were trying to buy a $700,000 home, interest rates were around 3.72% which would equate to a monthly payment of around $3,230(principle and interest only). However at an interest rate of 2.65% home would only cost about $2,820 a month. That’s a savings of over $400 a month compared to just a year ago.
You can see why everyone is scrambling to find a home right now. Although interest rates are not predicted to sky rocket this year, most experts agree they will go up, most likely somewhere between 3.3%-3.5% by the year’s end.
Buyers: With interest rates predicted to rise by almost all leading experts by the end of the year, and with Orange County expecting somewhere around 6-8% appreciation this year, waiting for the market to cool down before trying to buy a home is more than likely going to just further price you out of your dream home. Yes, competition is fierce right now, but if you work with a great lender and real estate agent your chances of finding a property in the next few months will still be high.
Sellers: If you have been thinking of placing your home on the market and haven’t started getting it ready, now is the time to do so. This year, based on current supply and demand trends, it looks like putting your home on the market between February and April will give you the best shot at selling your home quickly and at a high price. As homeowners start to exit their forbearance periods in March, some of those home owners will decide they want to sell instead of working out a new payment schedule with the bank. With that, on top of the traditional increases in inventory that starts to happen mid-February and peaks around July, will start to give you less of an advantage as buyers will have a few more options to choose from. At this point, all the data points to it still being a seller’s market as we head into Summer, but the odds of it becoming even hotter than it currently is are low.